Sallie Mae 2010 Annual Report Download - page 225

Guarantor(s) — State agencies or non-profit companies that guarantee (or insure) FFELP Loans made
by eligible lenders under The Higher Education Act of 1965 (“HEA”), as amended.
Lender Partners — Lender Partners are lenders who originate loans under forward purchase commit-
ments under which we own the loans from inception or, in most cases, acquires the loans soon after
origination.
Private Education Loans — Education loans to students or parents of students that are not guaranteed
under the FFELP. Private Education Loans include loans for higher education (undergraduate and graduate
degrees) and for alternative education, such as career training, private kindergarten through secondary
education schools and tutorial schools. Higher education loans have repayment terms similar to FFELP Loans,
whereby repayments begin after the borrower leaves school. Our higher education Private Education Loans are
not dischargeable in bankruptcy, except in certain limited circumstances. Repayment for alternative education
generally begins immediately.
In the context of our Private Education Loan business, we use the term “non-traditional loans” to describe
education loans made to certain borrowers that have or are expected to have a high default rate as a result of a
number of factors, including having a lower tier credit rating, low program completion and graduation rates
or, where the borrower is expected to graduate, a low expected income relative to the borrower’s cost of
attendance. Non-traditional loans are loans to borrowers attending for-profit schools with an original FICO
score of less than 670 and borrowers attending not-for-profit schools with an original FICO score of less than
640. The FICO score used in determining whether a loan is non-traditional is the greater of the borrower or
co-borrower FICO score at origination.
Repayment Borrower Benefits — Financial incentives offered to borrowers based on pre-determined
qualifying factors, which are generally tied directly to making on-time monthly payments. The impact of
Repayment Borrower Benefits is dependent on the estimate of the number of borrowers who will eventually
qualify for these benefits and the amount of the financial benefit offered to the borrower. We occasionally
change Repayment Borrower Benefits programs in both amount and qualification factors. These programmatic
changes must be reflected in the estimate of the Repayment Borrower Benefits discount when made.
Residual Interest — When we securitize student loans, we retain the right to receive cash flows from the
student loans sold to trusts that we sponsor in excess of amounts needed to pay servicing, derivative costs (if
any), other fees, and the principal and interest on the bonds backed by the student loans. The Residual
Interest, which may also include reserve and other cash accounts, is the present value of these future expected
cash flows, which includes the present value of any Embedded Fixed Rate Floor Income described above. We
value the Residual Interest at the time of sale of the student loans to the trust and as of the end of each
subsequent quarter.
Retained Interest — The Retained Interest includes the Residual Interest (defined above) and servicing
rights (as we retain the servicing responsibilities) for our securitization transactions accounted for as sales.
Risk Sharing — When a FFELP loan first disbursed on and after July 1, 2006 defaults, the federal
government guarantees 97 percent of the principal balance plus accrued interest (98 percent on loans disbursed
before July 1, 2006) and the holder of the loan is at risk for the remaining amount not guaranteed as a Risk
Sharing loss on the loan. FFELP Loans originated after October 1, 1993 are subject to Risk Sharing on loan
default claim payments unless the default results from the borrower’s death, disability or bankruptcy. FFELP
Loans serviced by a servicer that has Exceptional Performer designation from ED were subject to one-percent
Risk Sharing for claims filed on or after July 1, 2006 and before October 1, 2007. The CCRAA reduces
default insurance to 95 percent of the unpaid principal and accrued interest for loans first disbursed on or after
October 1, 2012.
Special Allowance Payment (“SAP”) — FFELP Loans disbursed prior to April 1, 2006 (with the
exception of certain PLUS and SLS loans discussed below) generally earn interest at the greater of the
borrower rate or a floating rate determined by reference to the average of the applicable floating rates (91-day
Treasury bill rate or commercial paper) in a calendar quarter, plus a fixed spread that is dependent upon when
the loan was originated and the loan’s repayment status. If the resulting floating rate exceeds the borrower
G-4